Author, Kevin Howard, Partner, Rancho Mesa Insurance Services, Inc.

The continuing trend of catastrophic claim activity over the last several years, rising number of nuclear settlements due to increased litigation funding, and hyperinflation are impacting all economic sectors. One of those sectors is the commercial property insurance market and the rapid increase in reconstruction costs. Per Verisks’s recently released Reconstruction Costs Analysis, from January of 2023 to January of 2024 the total reconstruction costs have increased by 4.1%. Since the 2020 pandemic, reconstruction costs have increased over 25% nationwide. For commercial property owners, these statistics require additional due diligence with their broker when evaluating the replacement cost of their respective portfolios during the pre-renewal process.

With interest rates still elevated and the demand for quality tenants still present, the last thing a property management group or single building owner needs is an underinsured claim that compromises cash flow.

Factors that have driven up reconstruction costs include:

• Demolition and debris removal

  Removing existing landscaping, debris and existing buildings add costs to a project. Balancing this work within the bounds of other occupants/tenants can also compromise timelines.

• Site

  New construction starts with a clean foundation. Reconstruction does not have a clean site, it may have foundations that need to be removed in order to add/replace plumbing, sewer, underground pipelines, etc.

• Labor

  The cost of labor has skyrocketed with higher wages, cost of living, medical benefits, etc. Those costs translate directly to contractor margins and have increased reconstruction project estimates.
  

• Hyperinflation

  Gas, rental equipment, and building materials have all been directly impacted by inflationary trends, further elevating reconstruction costs.

The above examples represent only some of reasons why property owners must re-evaluate and most likely increase property limits on their statement of values (SOV). Working with a broker who can utilize data analytics while also providing comparative models can help to identify appropriate coverage that complements the changing world of reconstruction.

To learn more about our detailed process for evaluating your risk exposure, contact me at khoward@ranchomesa.com or (619) 729-5173.